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Alligator
Introduction
This Alligator technical indicator contains of three lines: Jaws, Teeth and Lips
line. They are actually three Moving Averages with different parameters.
The first, blue line - Jaws line is a line of balance, represented by means of a 13
period moving average, shifted on 8 bars to the future.
The Red line - Teeth line
is a line of balance, represented by means of an 8 period moving average, shifted
on 5 bars to the future.
The Green line - Jaws line is a line of balance,
represented by means of a 5 period moving average, shifted on 3 bars to the future.
The indicator Alligator is announced by Bill Williams in his book "Trading
Chaos". The interpretation is: when all lines are interweaved, the "Alligator" sleeps,
and as long as it sleeps as hungry it is. When it awakes after long rest, it is
very hungry and starts "hunting" for the price, (the food of the Alligator), till
it is gorged. When the Alligator is gorged, it looses interest to food (price) -
the balance lines are convergent. This is the moment of fixing the profit. You should
close the position and wait until Alligator awakes again.
"Most of the time the market remains stationary. Only for some 15 - 30% of time the
market generates trends, and traders who are not located in the exchange itself
derive most of their profits from the trends. My Grandfather used to repeat: "Even
a blind chicken will find its corns, if it is always fed at the same time". We call
the trade on the trend "a blind chicken market". It took us years, but we have produced
an indicator, that lets us always keep our powder dry until we reach the blind chicken
market" Bill Williams
Calculation
The three Alligators lines are Moving Averages with
different parameters:
Alligator Line = MA(Base Price, n, s)
Lips = MA(Median Price, 13, 8)
Teeth = MA(Median Price, 8, 5)
Jaws = MA(Median Price, 5, 3)
Where:
MA - Moving Average
Median Price = (Price High + Price Low) / 2
n - the period of Moving Average
s - the shift of Moving Average - number of bars we move the MA value ahead in the future
Parameters
Logic - from this dropdown box we chose the logic of using of the indicator. The possible logics are:
- The Lips value is rising.
We have a signal buy when the current Lips bar value is higher than the previous bar value. And we have a signal sell when the current Lips bar value is lower than the previous bar value. - The Lips value is falling.
We have a signal buy when the current Lips bar value is lower than the previous bar value. And we have a signal sell when the current Lips bar value is higher than the previous bar value. - The Teeth value is rising.
We have a signal buy when the current Teeth bar value is higher than the previous bar value. And we have a signal sell when the current Teeth bar value is lower than the previous bar value. - The Teeth value is falling.
We have a signal buy when the current Teeth bar value is lower than the previous bar value. And we have a signal sell when the current Teeth bar value is higher than the previous bar value. - The Jaws value is rising.
We have a signal buy when the current Jaws bar value is higher than the previous bar value. And we have a signal sell when the current Jaws bar value is lower than the previous bar value. - The Jaws value is falling.
We have a signal buy when the current Jaws bar value is lower than the previous bar value. And we have a signal sell when the current Jaws bar value is higher than the previous bar value. - The Lips line crosses the Teeth line from below.
We have a signal buy when the current Lips value is higher than the current Teeth value and the previous Lips value is lower than the previous Teeth value. And we have a signal sell when the current Lips value is lower than the current Teeth value and the previous Lips value is higher than the previous Teeth value. - The Lips line crosses the Teeth line from above.
We have a signal buy when the current Lips value is lower than the current Teeth value and the previous Lips value is higher than the previous Teeth value. And we have a signal sell when the current Lips value is higher than the current Teeth value and the previous Lips value is lower than the previous Teeth value. - The Lips line crosses the Jaws line from below.
We have a signal buy when the current Lips value is higher than the current Jaws value and the previous Lips value is lower than the previous Jaws value. And we have a signal sell when the current Lips value is lower than the current Jaws value and the previous Lips value is higher than the previous Jaws value. - The Lips line crosses the Jaws line from above.
We have a signal buy when the current Lips value is lower than the current Jaws value and the previous Lips value is higher than the previous Jaws value. And we have a signal sell when the current Lips value is higher than the current Jaws value and the previous Lips value is lower than the previous Jaws value. - The Teeth line crosses the Jaws line from below.
We have a signal buy when the current Teeth value is higher than the current Jaws value and the previous Teeth value is lower than the previous Jaws value. And we have a signal sell when the current Teeth value is lower than the current Jaws value and the previous Teeth value is higher than the previous Jaws value. - The Teeth line crosses the Jaws line from above.
We have a signal buy when the current Teeth value is lower than the current Jaws value and the previous Teeth value is higher than the previous Jaws value. And we have a signal sell when the current Teeth value is higher than the current Jaws value and the previous Teeth value is lower than the previous Jaws value.
Smoothing Method - During the calculating of the Alligator lines, Forex Strategy Builder uses Moving Averages to smooth the values. From here we can chose the calculation method of the MA.
- Simple - Simple Moving Average.
- Weighted - Weighted Moving Average.
- Exponential - Exponential Moving Average.
- Smoothed - Smoothed Moving Average.
Base Price - the base price for calculating the indicator.
- Open - the first price for the bar.
- High - the highest price for the bar.
- Low - the lowest price for the bar.
- Close - the last price for the bar.
- Median - (High + Low)/2.
- Typical - (High + low + Close)/3.
- Weighted - (High + low + 2*Close)/4.
Use previous bar value - when we open a position on price different than Price Close or Day Close, we have to mark this check box. This guarantees us that we use the correct indicator's value at the time of opening the position.
Period Jaws - the period of MA for calculating the Jaws.
Shift Jaws - the shift of MA for calculating the Jaws.
Period Teeth - the period of MA for calculating the Teeth.
Shift Teeth - the shift of MA for calculating the Teeth.
Period Lips - the period of MA for calculating the Lips.
Shift Lips - the shift of MA for calculating the Lips.
Default parameters
- Logic - The Lips value is rising.
- Smoothing Method - Smoothed.
- Base Price - Median.
- Period Jaws - 13
- Shift Jaws - 8
- Period Teeth - 8
- Shift Teeth - 5
- Period Lips - 5
- Shift Lips - 3
Usage
We can use the Alligator as an Open or a Close Filter. Like an Open Filter, depending of the Logic, it allows the opening of a long or short position. When we use it as a Close Filter, when the Logic's conditions are satisfied it forces the closing of the current position.